Maximizing Your Hsa: Investing With Health Equity

Investing in an HSA with Health Equity is a great way to save money on healthcare costs and potentially earn long-term growth with significant tax savings. By opening an HSA account and making pre-tax contributions, you can grow your savings tax-free and enjoy tax-free distributions upon meeting the minimum amount. Health Equity offers access to various investment options, including mutual funds, with no hidden fees, providing a flexible way to manage your funds. With Health Equity's tools and guidance, you can easily monitor and manage your investments, diversify your portfolio, and keep costs low, making it a simple and effective way to maximize your healthcare savings.

Tax-free funds

A Health Savings Account (HSA) is a tax-advantaged member-owned account that lets you save pre-tax dollars for future qualified medical expenses. A key benefit of an HSA is that the tax-free funds in your account can be invested. Account holders can potentially earn a return on their savings.

You can make pre-tax contributions to your HSA, which means that contributions to your HSA (whether by you or your employer) are tax-free. You can also grow tax-free earnings and enjoy tax-free distribution for qualified medical expenses. This means that any investment gains in your HSA are tax-free.

To start investing your HSA, you need to build your portfolio. This involves understanding your own financial goals and risk tolerance. You can then select which investment level suits your investment goals. 'Advisor Auto Pilot' and 'Advisor GPS' provide expert fund management and investment advice, while 'Self-Driven' allows you to manage your investments and trades yourself.

Once you have selected your investment level, you can choose the funds that meet your investment goals. You can buy or sell shares from selected funds in your portfolio. There are two options for buying and selling shares: you can specify a set dollar amount to purchase shares based on target holdings, or you can specify a dollar amount to buy or sell from each specific fund.

It's important to note that any investment gains in your HSA are tax-free only if they are used for qualified medical expenses. If you use the funds for any other purpose, you will be subject to income taxes.

Pre-tax contributions

You can make pre-tax contributions to your HSA through payroll contributions. Each contribution reduces your taxable income by one dollar. For example, if your effective tax rate is 25%, you will save a quarter for every dollar you set aside. These contributions are made before taxes, so they are not included in your gross income.

The amount you can contribute to your HSA depends on the type of high-deductible health plan (HDHP) coverage you have, your age, and the date you become eligible for an HSA. For 2023, the contribution limit for self-only HDHP coverage is $3,850, and for family HDHP coverage, it is $7,750. If you are age 55 or older, your contribution limit is increased by $1,000.

You can make pre-tax contributions to your HSA until the tax filing deadline, which is usually in mid-April of the following year. This allows you to reduce your annual tax bill. Any contributions made by your employer are also excluded from your income and are not taxed.

By making pre-tax contributions to your HSA, you can take advantage of the tax benefits offered by HSAs and maximise your savings for healthcare costs.

Tax-free distribution

A Health Savings Account (HSA) is a tax-advantaged account that allows you to save pre-tax dollars for future qualified medical expenses. One of the key benefits of an HSA is the ability to make tax-free distributions for qualified medical expenses. This means that you can withdraw funds from your HSA to pay for eligible medical costs without incurring any tax penalties. This is a significant advantage, as it enables you to utilize your HSA funds in a tax-efficient manner when covering healthcare costs.

When you make a withdrawal from your HSA for a qualified medical expense, the distribution is not subject to federal income tax. This is a valuable feature, as it allows you to maximize the value of your HSA savings. It is important to note that the tax-free distribution applies only if the funds are used for qualified medical expenses. These expenses include a wide range of healthcare costs, such as doctor visits, medications, preventive care, and more.

The tax-free distribution feature of an HSA is particularly advantageous when compared to other types of savings or investment accounts. Typically, withdrawals from traditional savings or investment accounts may be subject to taxes, reducing the overall value of your savings. However, with an HSA, you can access your funds tax-free as long as they are used for their intended purpose of covering healthcare expenses.

Additionally, the tax-free distribution feature of an HSA can help you maximize your savings over time. By avoiding taxes on distributions, you can retain more of your savings, allowing your funds to grow and compound tax-free. This can be especially beneficial if you are saving for future healthcare needs or building a retirement nest egg.

It is important to note that there may be specific requirements and limitations associated with HSA tax-free distributions. For example, you may need to meet certain eligibility criteria to qualify for an HSA, and there are rules regarding contribution limits and qualified medical expenses. Therefore, it is always recommended to consult with a tax professional or financial advisor to understand the specific rules and regulations surrounding HSA tax-free distributions.

Mutual funds

To start investing in mutual funds, you need to meet the minimum amount to start investing and have an HSA and a high-deductible health plan (HDHP) with HealthEquity. Once you have met these requirements, you can log in to the HealthEquity app and select the "Investments" menu to get started. You can choose to receive investment advice from Advisor, a web-based guidance tool, or manage your own investments without advice (Self-Driven).

Advisor provides web-based professional investment guidance and access to powerful online tools to maximize your tax-free HSA earning potential. It offers two options: Advisor AutoPilot and Advisor GPS. Advisor AutoPilot provides fund management and automatically implements investment advice based on your risk profile, while Advisor GPS provides fund management and investment advice, allowing you to choose to implement your own investment strategy or use the suggested strategy.

If you opt for the Self-Driven option, you will select the amount of cash to maintain in your HSA and portfolio allocation targets. HealthEquity offers 31 low-cost Vanguard mutual funds to choose from, which carry comparatively low expense ratios. You can also access more than 8,700 mutual funds through a Schwab Health Savings Brokerage Account (HSBA) with no loads and no transaction fees.

It's important to note that investments in mutual funds are subject to risk, including the possible loss of the principal invested, and are not FDIC or NCUA insured, or guaranteed by HealthEquity.

Investment options

HealthEquity offers three options for investing in mutual funds: AutoPilot, GPS, and Self-driven. AutoPilot and GPS both provide expert fund management and investment advice, while Self-driven allows you to manage your investments and trades yourself.

To get started with investing your HSA funds, log into the member portal using your computer and select 'Investments' from the 'My Account' tab. Indicate whether you would like to receive investment advice (Advisor) or if you would like to manage your own investments without advice (Self-Driven).

If you choose to receive investment advice, you will be directed to the Advisor investment tool to define your investment and risk-management settings. Advisor Auto Pilot provides fund management and automatically implements this advice based on your risk profile. Advisor GPS also provides fund management and investment advice.

If you select Self-Driven, you will need to choose the funds that meet your investment goals and click the 'Add' button to add them to your investment mix. You can then buy or sell shares by selecting 'Make a Trade'. You have two options for buying and selling shares: specifying a set dollar amount to purchase shares based on target holdings or specifying a dollar amount to buy or sell from each specific fund.

HealthEquity also offers access to Advisor, a web-based tool that provides professional investment guidance and access to powerful online tools to maximize your tax-free HSA earning potential. With flexible options, you can choose to manage your funds yourself or have HealthEquity do it for you.

Frequently asked questions